Effectivity of the control of capital flows: an empirical reexamination of the recent experience in Colombia

Abstract

We use a proxy of short-term private capital flow controls and variables that try to measure the level of commercial credits and also the international transactions as well as the expulsion and atraction to assess the effectiveness of capital controls, specifically to of a non remunerated deposit over the external credit flows, in the colombian case. We use Johansen and Juselius' methodology which allows to directly use non stationary variables in the computations and to control for simultaneity problems. The main conclusion is that the controls have been effective in lowering the short-term capital flows. The evidence also emphasizes the role played by the expulsion and attraction factors in the determination of the flows of external credits, and it shows that the uncovered interest rate parity hypothesis, adjusted by a risk premium, is not satisfied by the data.